Option Investor

Daily Newsletter, Monday, 12/4/2017

Table of Contents

  1. Market Wrap
  2. New Option Plays
  3. In Play Updates and Reviews

Market Wrap

Tax Reform Does It Again

by Thomas Hughes

Click here to email Thomas Hughes


The market moved higher as Trump's Tax Plan passes another major hurdle. In the wee hours of Saturday morning Senate republicans came together to pass their version of the tax plan. The next phase is for a joint committee two hammer out the differences and take it back to a vote in both chambers. Analysts at UBS say tax reform could fuel an additional 25% for the S&P 500 next year.

Markets in Asia were mixed in Monday trading despite the move forward in US tax reform. There was little to move markets in the region other than news from abroad and that was dominated by the Flynn plea bargain announced Friday. Japan led the losers with a decline of -.49% while Korea led gainers with an advance near 1.5%. European indices were better able to shrug off the Flynn developments in favor of tax reform and moved higher across the board. Aiding sentiment is an expectation for Brexit negotiators to come together this week in an effort to bridge gaps left at the previous session. The DAX led with gains near 1.5% with most indices advancing 1% or more.

Market Statistics

Futures trading was positive and strong all morning. The Dow Jones Industrial average was indicated to open with a gain near 1% with the SPX trailing at 0.5%. The broad market opened as expected, the SPX began the day up 0.5% and quickly extended that to near 0.75%. This turned out to be the early high leaving the market trending sideways near the open for the better part of the morning. By early afternoon opening levels were being tested and by late afternoon many of the indices were back to break even with the tech heavy NASDAQ deep in the red.

Economic Calendar

The Economy

Factory Orders fell less than expected in the last month, down only -0.1% versus an expected -0.4%. The beat comes on a -0.6% rise in shipments and inventories. Unfilled orders remained unchanged suggesting the number of unfilled orders continues to grow but at the same pace as the previous month.

Moody's Survey Of Business Confidence jumped 1.7 points in the last week to hit 36.5 and a 5 month high. The gain comes in the wake of positive Black Friday/Cyber Monday data and with the expectation of US tax reform. Mr. Zandi says the data reveals an economy growing meaningfully beyond its potential and that forward outlook remains strong. Of not, businesses report that investment and credit conditions are good.

With slightly more than 99% of the S&P reporting for the 3rd quarter the cycle is all but done. The final rate of growth for the quarter has ticked up another tenth to 6.4%. Looking forward the 4th quarter is expected to deliver 10.5% but that is likely to fall over the next 8 weeks. All 11 sectors are expected to show growth, led by the energy sector. Full year 2017 estimate have held steady at 9.5%.

2018 estimates remain robust an in the double digits with earnings growth expanding into the end of the year. First quarter growth is projected at 10.6% which dips to 10.2% in the second before picking up again in the second half of the year. Third quarter earnings are expected to spike to 11.6% and then moderate to 11.2% in the fourth. Full year 2018 is expected to see growth in the range of 11.1% over 2017.

The Dollar Index

The Dollar Index gapped up at today's open on tax reform news but those gains were capped by data from abroad; UK and German PPI data were a bit mixed in terms of expectations but both show continued growth within their respective economies. That said the index created a small red bodied candle within the last week's narrow trading range and near the mid point of the short term range that has been dominating it for the past 2 months. The index is winding up ahead of the next round of central bank meetings which are scheduled to start tonight with the RBA and continue over the next 3 weeks. The highlight of the this cycle is in two weeks when the FOMC reports on Wednesday and the ECB and BOE both announce their decisions the day after. The $93 region is acting as support for now, a move lower could go to $91, a move higher to $95.

The Gold Index

Gold prices held steady in today's action, creating a small red candle just above $1,275. The metal is under pressure from tax reform and the expected economic growth it will bring. Now trading near the bottom of a near term range there is a possibility it will continue to test support into the near term. The bottom of the range is closer to $1,272.50 which is near term support. A break of this level could be bullish if supported by the data. This week's data is US heavy with NFP and Unemployment on Friday. NFP is expected to be 201,000, down from last month's 260,000, while Unemployment is expected to remain steady at 4.1%.

The Gold Miners ETF GDX fell a little more than -1% and very nearly set a new 4 month high. The ETF has been trending sideways within a range for some time and very near the mid point of that range. The indicators are both bearish, MACD confirming today, suggesting the near term support will be tested at least. A break of this level would be bearish within the range with downside target near $21. A strong NFP may be the trigger considering a December rate hike is all but done.

The Oil Index

Oil prices fell a little more than -1.5% on rising rig counts. Rising prices have spurred drillers to increase production as we knew it would although there is no wild boom of new rigs just yet. The latest read shows only 2 new rigs added in the last week and basically holding steady near 750. WTI shed nearly a dollar on the news and is now trading just shy of $57.50. On the flipside the OPEC extension is supporting prices near long term highs and may continue to keep prices at/near these levels into the near term.

The Oil Index tried to rally but the gains were capped by today's fall in oil prices. The index did however manage to close with gains and still looking bullish. The last two candles show signs of resistance to higher prices but are indicated higher. Both indicators are firing bullish trend following signals, MACD confirmed today, that could take it up to my 1,300 target. The move is supported by high oil prices and positive forward earnings outlook.

In The News, Story Stocks and Earnings

Topping today's business news is word from CVS that they will be buying Aetna. The deal is worth $65.8 billion in debt and equity. CEO's of both companies say the move will immediately lower health care costs as they realize synergies and increase efficiency within the vertical. There are some doubts centered on antitrust issues and the value to shareholders which caused shares of CVS to fall more than -5%.

The banks are getting a big boost from from the tax plan as they are largely expected to receive the most benefit. The XLF Financial Sector SPDR jumped 1.5% at the open on the news and set a new 10 year high. The ETF is extending a bounce from the short term moving average and is indicated higher. Both MACD and Stochastic are bullish and on the rise, in support of higher prices, with targets near pre-2007 levels and above. The hurdle at this time is of course reconciliation between the two houses and passage of the bill.

The VIX began the day moving lower but reversed in the late afternoon along with the major indices. The fear gauge is confirming support at the pair of moving averages and indicated higher. Such a move is consistent with rising fear but not necessarily correction. This move could be due to the anticipation of tax reform and positioning in the case it should be hit a hiccup, be stalled or fail. A move higher may find resistance near the $14 level, a move above there would be more alarming.

The Indices

Today's action started off great but faded toward the end of the day. Early trading saw most post new all time highs but the close was mixed. The leader in terms of gains was the Dow Jones Transportation Average at 1.78%. The transports continue to power higher although there are signs of resistance in the charts. Today's candle ended the day as a medium green candle with long upper shadow. The day's range is close to 3% so a significant day especially relative to recent action. Resistance appears to be near 10,500 at this time and likely tested again. Both indicator remain bullish and pointing higher, consistent with higher prices. A break above 10,500 would be bullish with target near 11,500.

Today's loss leader is the NASDAQ Composite with a decline of -1.05%. The tech heavy index was the first to show losses and fell the hardest creating a long red candle and Dark Cloud Cover pattern. Today's action was halted by the short term moving average which has been acting as support. Both indicators have rolled over into bearish signals suggesting support will be tested further and possibly broken. A break below the short term 30 day moving average would be bearish with target near 6,600 and my long term up trend line. A bounce from this level would be bullish and trend following.

The S&P 500 posted the smallest loss, only -0.10%, but created a red candle in the process. Today's candle is small to medium size and creating a bearish attack. The indicators are still bullish but have begun to roll over in sign of possible resistance at current levels. A move lower may move down to the short term moving average near 2592. A consolidation and/or move higher would be bullish and trend following.

The Dow Jones Industrial Average posted the smallest gains rising just 0.24%. Despite posting gains and setting a new all time high today's candle is bearish, red bodied and forming a potentially bearish pattern. The indicators remain bullish and moving higher so it may not turn out to be. Both MACD and stochastic are pointing higher and in line with the prevailing trend with only the weakest indication of resistance in the %K line. A fall from here may find support at 24,000 or just below that near the short term moving average. If the index can hold this level a move higher is likely with target above24,500.

Tax reform news moved stocks but price action shows the market is not quite convinced it will pass as quickly as it seems. While action in the indices had a bearish tone to it the indicators remain bullish for the longer term and internals are positive. Advancers and decliners were evenly matched but new highs outpaced new lows by roughly 8 to 1. Any pull back that may happen in the near term is likely to be limited in magnitude. What is important to remember during all this tax reform hooplah is that underlying the market, the fundamental driver of the market, is the long term economic and earnings outlook. Those are still sound, still positive and will still drive the market higher in the long term. I am bullish for the long term but cautious for the near.

Until then, remember the trend!

Thomas Hughes



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New Option Plays

Breakout Ahead

by Jim Brown

Click here to email Jim Brown

Editors Note:

Heavy option activity suggests this stock will breakout to new highs. This is a strong stock in a strong sector.


TRN - Trinity Industries - Company Profile

Trinity Industries, Inc. provides various products and services to the energy, chemical, agriculture, transportation, and construction sectors in the United States and internationally. Its Rail Group segment offers railcars, including autorack, box, covered hopper, gondola, intermodal, tank, and open hopper cars; and tank cars, as well as railcar maintenance services. This segment serves railroads, leasing companies, and industrial shippers of various products. The company's Railcar Leasing and Management Services Group segment leases tank and freight railcars to industrial shippers and railroads; and provides management, maintenance, and administrative services. As of December 31, 2016, this segment had a fleet of 85,110 owned or leased railcars. Its Construction Products Group segment offers highway products, such as guardrail, crash cushions, and other barriers; aggregates, including expanded shale and clay, crushed stone, sand and gravel, asphalt rock, and other products, as well as other steel products for infrastructure-related projects; and trench shields and shoring products for the construction industry. This segment offers aggregates to concrete producers; commercial, residential, and highway contractors; manufacturers of masonry products; and state and local municipalities. The company's Energy Equipment Group segment manufactures structural wind towers; utility steel structures for electricity transmission and distribution; storage and distribution containers; cryogenic tanks; and tank heads for pressure and non-pressure vessels. Its Inland Barge Group segment provides deck barges, and open or covered hopper barges to transport grain, coal, and aggregates; and tank barges to transport chemicals and various petroleum products, as well as fiberglass reinforced lift covers for grain barges. Trinity Industries, Inc. was founded in 1933 and is headquartered in Dallas, Texas. Company description from FinViz.com.

More than 11,500 January $35 calls traded on Monday against an open interest of only 325. The excitement was generated by activist shareholder ValueAct Holdings, which has acquired 1.3 million shares since October and now owns 18.595 million and more than 12% of the company. Their last purchase was 43,000 shares on November 16th.

In October, the courts reversed a $663 million judgment against Trinity. The claim was for fraud after the company changed its formula for the steel in highway guardrails in 2005 and did not tell the Federal highway system. Billions of dollars of these rails have been installed around the country and after extensive testing the government found nothing wrong but complained anyway. A Texas court in 2015 awarded the judgment and Trinity appealed. The appeals court wrote a 42-page opinion tossing the case and reversing the judgment.

Earnings estimates for Trinity for Q4 have risen 31 cents to 42 cents per share over the last two months. That is a 300% rise. For the full year estimates have risen from $1.25 to $1.44.

Earnings January 24th.

Shares closed at a new 52-week high on Monday and appear destined to make higher highs. That massive amount of option volume at the money at $1.25-$1.50 per share represents $1.6 million in premium at an average of $1.40 per share. I am recommending we follow this trade only buy a higher strike.

Buy Jan $37 call, currently $1.05, no initial stop loss.


No New Bearish Plays

In Play Updates and Reviews

Saved by the Bell

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Nasdaq crashed again and the Dow almost turned a 300 point gain into a loss. The Dow gapped open +302 points then gave back -245 to end with only a minimal gain. If the market had been open another 30 min, it would have been a loss. This was pure sector rotation once again and a repeat of the crash from last Wednesday. The Nasdaq actually gapped open to 6,900 before falling -125 points to close at the low of the day. Tech stocks, led by the chip sector were falling hard.

Current Portfolio

Stop Loss Updates

Check the graphic below for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.

Profit Targets

Check the graphic below for any profit stops in green. We need to always be prepared for a profit exit at resistance.

Current Position Changes

SMH - Semiconductor ETF
The long call position was entered at the open.

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BULLISH Play Updates

DXCM - Dexcom Inc - Company Profile


No specific news. Minor retracement.

DXCM will present an update on the company to be presented at 11:AM ET on Dec 14th at the BMO healthcare conference.

Original Trade Description: November 25th

DexCom, Inc., a medical device company, together with its subsidiaries, focuses on the design, development, and commercialization of continuous glucose monitoring (CGM) systems in the United States and internationally. The company offers its systems for ambulatory use by people with diabetes; and for use by healthcare providers in the hospital for the treatment of patients with and without diabetes. Its products include DexCom G4 PLATINUM system for continuous use by adults with diabetes; DexCom G4 PLATINUM with Share, a remote monitoring system; and DexCom G5 Mobile, a CGM system that directly communicates to a patient's mobile and its data can be integrated with DexCom CLARITY, which is a next generation cloud-based reporting software for personalized, easy-to-understand analysis of trends to improve diabetes management. The company also offers sensor augmented insulin pumps. It has a collaboration and license agreement with Verily Life Sciences LLC to develop a series of next-generation CGM products. The company markets its products directly to endocrinologists, physicians, and diabetes educators. Company description from FinViz.com.

DSCM was slammed for a $22 loss at the open on Sept 28th on news that Abbott Labs had made a glucose monitoring system that did not require the daily pinprick to draw a drop of blood. Shares fell from $67.50 to $44.50 and stayed there for a month. Investors feared diabetics would drop the DexCom monitoring products in a heartbeat and move to Abbott's system.

On November 1st, the company posted better than expected earnings and revenue and the stock began to rise again.

Expected earnings January 31st.

The DexCom CEO gave an interview on CNBC last week and he said the Abbott system will not have a dramatic impact to DexCom sales. He pointed out that they had been competing against the Abbott Libre system in Europe for three years and growth has continued to rise. It wa sup 80% in Q3 alone.

The CEO said the DexCom system does much more than the Abbott system. "Our system connects to phones. We share data with people who watch patients. We offer performance and accuracy that others do not. He said DexCom could release its own blood-free glucose monitoring device by the end of 2018. DexCom is also in a venture with Apple to monitor glucose through the Apple Watch. The data will go straight to the cloud for monitoring and there will be no need to communicate through a daily phone call. The watch will become your monitoring device.

The $20 drop was serious overkill and the stock is rebounding now that investors understand there is no immediate impact and there are new devices on the horizon.

We have to reach out to the March strikes because the February series has not yet been added. With earnings January 31st we need to hold an option dated after the earnings to avoid the rapid decline in premium in pre-dated options.

Position 11/27/17:

Long Mar $60 call @ $3.30, see portfolio graphic for stop loss.

FB - Facebook - Company Profile


Facebook launched a parent controlled messaging app for kids under 13 that looks a lot like Snapchat. Kids cannot add their own friends or delete messages. Only parents can perform those functions. This will allow kids to interact socially yet under adult supervision. It is also a way to addict kids to the Facebook system so they will be daily users in the years ahead.

Shares crashed again as the big cap tech stocks took another dive.

Original Trade Description: November 29th

Facebook, Inc. provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. Its solutions include Facebook Website and mobile application that enables people to connect, share, discover, and communicate each other on mobile devices and personal computers; Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application to communicate with people and businesses across platforms and devices; and WhatsApp Messenger, a mobile messaging application. The company also offers Oculus virtual reality technology and content platform, which allow people to enter an immersive and interactive environment to play games, consume content, and connect with others. As of December 31, 2016, it had approximately 1.23 billion daily active users. Facebook, Inc. was founded in 2004 and is headquartered in Menlo Park, California. Company description from FinViz.com.

Everyone should know this story. There is no need to go into lengthy detail on this tech giant. They posted blow out earnings and spiked from $170 to $183. Shares have traded sideways to down for the last two weeks but they have quit declining with three consecutive days at $178.

Analysts are targeting well over $200 because Facebook is printing money. Their growth is outstanding and they still have numerous web properties they have not yet monetized. They are launching Facebook TV, original content, the list of new opportunities is endless.

RBC Capital raised their price target from $190 to $230 to match Mizuho. Monnes Crespi Hardt is $210, Aegis Capital $215, Needham $215, etc. There is plenty of upside from here. Facebook is the largest earnings grower in the space.

Facebook fell $8 intraday and came to rest right on uptrend support and the support of the 60-day moving average.

Facebook has been showing good relative strength in the past several weeks and analysts continue to raise the price targets. This is a buying opportunity ahead of window dressing in late December. What fund manager does not want to have FB in his year end portfolio?

The original FB position was stopped out in the Nasdaq crash on Nov 29th and we rentered this new position on Nov 30th.

Update 11/30: MKM Partners boosted their price target from $200 to $240 and the highest on the street. Shares rebounded $2. The analyst said consensus expectations for revenue decline were overstated.

Update 12/2: JPM said FB and Netflix were the two best ideas in tech for 2018. They have a $225 target on FB and $242 on Netflix. Facebook Messenger should get a boost in two weeks as AOL Instant Messenger (AIM) will shut down on Dec 15th.

Position 11/30/17:

Long Feb $180 call @ $8.00, see portfolio graphic for stop loss.
Short Feb $195 call @ $2.55, see portfolio graphic for stop loss.
Net debit $5.45.

GILD - Gilead Sciences - Company Profile


No specific news. Shares rolled over with the sector. The biotech index fell -85 points.

Original Trade Description: November 7th

Gilead Sciences, Inc. discovers, develops, and commercializes medicines in the areas of unmet medical needs in Europe, North America, Asia, South America, Africa, Australia, India, and the Middle East. The company's products include Descovy, Odefsey, Genvoya, Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, Tybost, and Vitekta for the treatment of human immunodeficiency virus (HIV) infection in adults; and Vemlidy, Epclusa, Harvoni, Sovaldi, Viread, and Hepsera products for treating liver diseases. It also offers Zydelig, a PI3K delta inhibitor, in combination with rituximab, for the treatment of certain blood cancers; Letairis, an endothelin receptor antagonist for the treatment of pulmonary arterial hypertension; Ranexa, a tablet used for the treatment of chronic angina; Lexiscan/Rapiscan injection for use as a pharmacologic stress agent in radionuclide myocardial perfusion imaging; Cayston, an inhaled antibiotic for the treatment of respiratory systems in cystic fibrosis patients; and Tamiflu, an oral antiviral capsule for the treatment and prevention of influenza A and B. In addition, the company provides other products, such as AmBisome, an antifungal agent to treat serious invasive fungal infections; and Macugen, an anti-angiogenic oligonucleotide to treat neovascular age-related macular degeneration. Further, it has product candidates in various stages of development for the treatment of HIV/AIDS and liver diseases, such as hepatitis C virus and hepatitis B virus; hematology/oncology; cardiovascular; and inflammation/respiratory diseases. The company markets its products through its commercial teams and/or in conjunction with third-party distributors and corporate partners. Gilead Sciences, Inc. has collaboration agreements with Bristol-Myers Squibb Company, Janssen R&D Ireland, Japan Tobacco Inc., Galapagos NV., and Spring Bank Pharmaceuticals, Inc. Company description from FinViz.com.

Earnings January 25th.

Shares of Gilead surged in late August after the company raised guidance on drug sales. Those gains faded as they approached the Q3 earnings date. The declined even further after the company lowered guidance on sales because of increased competition. However, producing $25 billion a year in revenue and having multiple drugs in the pipeline with one of them expected to produce $3.5 billion in 2018, is a reason to buy this stock on a dip to support.

The company reported earnings of $2.27 compared to estimates for $2.13. Revenue of $6.5 billion also beat estimates for $6.4 billion. Net income was $2.7 billion.

Gilead bought Kite Pharma for $12 billion earlier this year to gain access to their cancer immunotherapy drugs. The company is working on logistics for for launching sales of the newly approves non-Hodgkin lymphoma drug Yescarta developed by Kite. The drug costs $373,000 for a one-time treatment.

Gilead warned that Hep-C revenue was declining as fewer patients were deemed eligible for treatment and there was higher competition from companies like AbbVie. Sales of their Hep-C drugs declined from $3.3 billion to $2.2 billion in Q3. They lowered full year guidance for Hep-C from $9.5 billion to $9.0 billion.

At the same time they raised full year guidance on all sales from $24.0 billion on the low side to $24.5 billion with the upper rage at $25.5 billion.

While Hep-C sales may be slowing thanks to a 95% cure rate there are plenty of other drugs in the pipeline. Gilead has plenty of cash to develop and market new drugs. This is a good company and the drop to support is a buying opportunity.

Update 11/8/17: Mizuho raised the price target to $83. The analyst said Gilead did not overpay for Kite given the strength of the drug pipeline. Recent trial results have been positive on multiple drugs. The analyst reminded that Gilead paid $11 billion for Pharmasset in 2011 that enabled them to corner the Hep-C market for 5 years.

Update 11/30/17: Maxim Group upgraded Gilead from hold to buy with a $94 price target. Gilead closed at $75 giving it plenty of room to run.

Position 11/8/17:

Long Feb $75 Call @ $3.45, see portfolio graphic for stop loss.

MCK - McKesson - Company Profile


No specific news but McKesson exploded higher with a $6.70 gain.

Original Trade Description: November 15th

McKesson Corporation provides pharmaceuticals and medical supplies in the United States and internationally. The company operates in two segments, McKesson Distribution Solutions and McKesson Technology Solutions. The McKesson Distribution Solutions segment distributes branded and generic pharmaceutical drugs, and other healthcare-related products; and provides practice management, technology, clinical support, and business solutions to community-based oncology and other specialty practices. This segment also provides specialty pharmaceutical solutions for pharmaceutical manufacturers; and medical-surgical supply distribution, logistics, and other services to healthcare providers. In addition, this segment operates retail pharmacy chains in Europe and Canada, as well as supports independent pharmacy networks in North America and Europe; and supplies integrated pharmacy management systems, automated dispensing systems, and related services to retail, outpatient, central fill, specialty, and mail order pharmacies. This segment serves retail national accounts, including national and regional chains, food/drug combinations, mail order pharmacies, and mass merchandisers; and institutional healthcare providers, such as hospitals, health systems, integrated delivery networks, and long-term care providers, as well as offers its services to pharmaceutical manufacturers. The McKesson Technology Solutions segment provides clinical, financial, and supply chain management solutions to healthcare organizations. McKesson Corporation was founded in 1833 and is headquartered in San Francisco, California. Company description from FinViz.com.

Earnings Jan 25th.

McKesson reported earnings of $3.28 that beat estimates for $2.80. Revenue of $52.06 billion beat estimates for $51.73 billion. So far, so good. However, they lowered 2018 guidance from $7.10-$9.00 to $4.80-$6.90. There were multiple reasons for the lowered guidance and none of them were sales related.

Amortization of acquisition related intangibles of $2.40-$2.70. Acquisition related expenses and adjustments of $.90-$1.10. Inventory related charges for LIFO adjustments of up to 20 cents. Restructuring charges of $1.10 to $1.40. "Other" adjustments of $1.40-$1.60. Given all those charges it is amazing they had any earnings left.

However, the line everyone overlooked was the guidance for "adjusted" earnings without those charges and that was $11.80-$12.50 for 2018. If you put a market PE of 18 on earnings of $12, you get a $216 share price. MCK shares were $138 today.

Shares have been holding over support at $135 for three weeks and suddenly rebounded $2.69 today in a very weak market. This relative strength should protect us against a further market decline.

Options are expensive so you can use the optional short call to make it a spread.

Position 11/16:

Long Feb $145 call @ $4.90, see portfolio graphic for stop loss.
OPTIONAL: Short Feb $160 call @ $1.59, see portfolio graphic for stop loss.

PYPL - PayPal - Company Profile


No specific news. Shares crashed with the Nasdaq in another day of sector rotation.

Original Trade Description: November 29th

PayPal Holdings, Inc. operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. It enables businesses of various sizes to accept payments from merchant Websites, mobile devices, and applications, as well as at offline retail locations through a range of payment solutions, including PayPal, PayPal Credit, Braintree, Venmo, Xoom, and Paydiant products. The company's platform allows consumers to shop by sending payments, withdraw funds to their bank accounts, and hold balances in their PayPal accounts in various currencies. Company description from FinViz.com.

They reported Q3 earnings of 46 cents, up 32%, that beat estimates for 44 cents. Revenue of $3.24 billion, up 21% and beat estimates for $3.17 billion. They guided for the current quarter for earnings of 50-52 cents and full year earnings of $1.86-$1.88. Mobile payment volume rose 54% to about $40 billion. Total payments rose 31% to $114 billion. Free cash flow rose 36% to $841 million and they have $7.1 billion in cash. They added 8.2 million active accounts with net new actives up 88%. They now have 218 million active customer accounts with 17 million merchants. They processed 1.9 billion payments, up 26%.

Q4 revenue is expected to rise 20-22% to $3.570-$3.630 billion. Paypal said payment platform Venmo was on track with expectations. The platform processed $9.1 billion in payment volume, a 93% YoY increase.

Expected earnings January 18th.

The company recently announced partnership deals with Baidu, Bank of America, Visa, JP Morgan, Facebook and Apple. They have changed their focus from disruptor to partner where they can process more transactions through the partners. The Baidu partnership will connect them to 700 million Chinese shoppers and 17 million Paypal merchants. The deal with Apple to allow Paypal in the iTunes store, AppStore and Apple Music will connect them to more than 1 billion IOS devices worldwide. The Facebook partnership gives them access to 2.01 billion users.

Thanks to recent agreements with MC/V, users will be able to transfer money directly from their accounts to credit/debit cards, which will become a big selling point. The new "Pay with Venmo" platform that will allow users to make purchases at retail locations is in test mode with Lululemon, Athletica and Forever 21 already accepting those payments. This is turning into another big revenue stream for Paypal.

PayPal just launched domestic payment services in India with 1.324 billion people.

Paypal signed a deal to sell $5.8 billion in its credit card portfolio to Synchrony Financial. The company said that would free up cash for acquisitions and expansion. The company raised its revenue forecast to $3.64-$3.70 billion for the current quarter. They raised earnings guidance from 37-39 cents to 52-59 cents.

Paypal closed exactly on horizontal support and the 30-day average, which has been support since February. The company is more of a bank than a tech stocks and should benefit from any further rotation into banks.

The original PYPL position was stopped out in the Nasdaq crash on Nov 29th and we rentered this new position on Nov 30th.

Update 12/2: Keybanc believes the Venmo payment app is going to be a breakout hit in 2018 and raised his price target for Paypal from $85 to $90. In a recent survey of 500 consumers, Venmo was the preferred payment option for 76% of respondents. Paypal is forecasting $75 billion in Venmo payments in 2018 and they get an estimated 4 cent EPS boost for every $10 billion.

Position 11/30/17:

Long Feb $75 call @ $3.75, see portfolio graphic for stop loss.

SMH - Semiconductor ETF - ETF Profile


We got a horrible fill this morning. The SMH gapped open $1 to spike the option premiums then fell $3 from the opening high to close near the lows for the day. The chip sector bore the brunt of the Nasdaq decline.

Original Trade Description: December 2nd.

VanEck Vectors Semiconductor ETF (SMH) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS US Listed Semiconductor 25 Index (MVSMHTR), which is intended to track the overall performance of companies involved in semiconductor production and equipment. The index seeks to track the most liquid companies in the industry based on market capitalization and trading volume. Industry Leaders: Index methodology favors the largest companies in the industry. Global Scope: Portfolio may include both domestic and U.S. listed foreign companies allowing for enhanced industry representation.

The semiconductor sector leads the Nasdaq because chips affect every tech product and service. The semiconductor sector was down -8% at the low on Friday in only four days. The decline stopped at the 50-day average, which has been support several times over the last year.

If the Nasdaq is going to move higher the chip sector will lead it.

Position 12/4/17:

Long Feb $100 call @ $3.50, see portfolio graphic for stop loss.
Short Feb $105 call @ $1.30, see portfolio graphic for stop loss.
Net debit $2.20.

BEARISH Play Updates (Alpha by Symbol)

DIA - Dow SPDR ETF - ETF Profile


The Dow gapped up +302 points at the open then declined -245 points to close at the low for the day with a minimal 58-point gain. This is a very bad pattern that could trigger some negative follow through in the days ahead.

Original Trade Description: November 16th

The SPDR Dow Jones Industrial Average ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Dow Jones Industrial Average. The DJIA is the oldest continuous barometer of the U.S. stock market, and the most widely quoted indicator of U.S. stock market activity.

I am going to make this as simple as possible. The Dow is still extremely overbought. It is due for a rest. The earnings cycle is over. Post earnings depression is here. The short squeeze is likely to fail. The tax plan faces an uphill battle and January could see a major market decline. It has been over 500 days since the market had a 5% decline and we average twice a year. We are due.

This is highly speculative. I am using March options because I want to have as much time as possible for this scenario to play out.

Position 11/17/17:

Long March $230 put @ $5.16, see portfolio graphic for stop loss.
Short March $210 put @ $1.71, see portfolio graphic for stop loss.
Net debit $3.45.

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